Measuring long-horizon security price performance

Our simulation results show that tests for long-horizon (i.e.. multi-year) abnormal security returns around firm-specific events are severely misspecified. The rejection frequencies using parametric tests sometimes exceed 30% when the significance level of the test is 5%. Our results are robust to m...

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Published in:Journal of financial economics 1997-03, Vol.43 (3), p.301-339
Main Authors: Kothari, S.P., Warner, Jerold B.
Format: Article
Language:English
Subjects:
Abnormal returns
Economic models
Event studies
Financial economics
Long-horizon performance
Measurement
Prices
Rates of return
Securities issues
Securities prices
Simulation
Statistical analysis
Stock prices
Studies
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description Our simulation results show that tests for long-horizon (i.e.. multi-year) abnormal security returns around firm-specific events are severely misspecified. The rejection frequencies using parametric tests sometimes exceed 30% when the significance level of the test is 5%. Our results are robust to many different abnormal-return models. Conclusions from long-horizon studies require extreme caution. Nonparametric and bootstrap tests are likely to reduce misspecification.
doi_str_mv 10.1016/S0304-405X(96)00899-9
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source International Bibliography of the Social Sciences (IBSS); Elsevier
subjects Abnormal returns
Economic models
Event studies
Financial economics
Long-horizon performance
Measurement
Prices
Rates of return
Securities issues
Securities prices
Simulation
Statistical analysis
Stock prices
Studies
title Measuring long-horizon security price performance
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